U.S. Depends Less on China – Well, At Least a Little Less

The huge borrowing by the U.S. Treasury to prop up U.S. financial firms is producing at least one surprise – Americans are doing a bigger percentage of the buying than in the past.

“The U.S. will go through several years where the size of the Treasury debt held by Americans increases,” says Brad Setser, an economist at the Council on Foreign relations, who tracks this kind of data. Why? Americans are going to start to save again, he figures, and they’re no longer willing to buy risky assets, making Treasurys look increasingly attractive.

He has collected some recent data to back up his contention. In October, he calculates, foreign central bank holdings of Treasurys declined to 37.4% of marketable Treasurys, down from 40.8% in August.

The Chinese bank held $750 billion in Treasury in October, or 13.3%, he estimates, compared to $700 billion in August, or 14.3%. That’s a decline of 1 percentage point in about three months.

Mr. Setser has long warned that the U.S. is too dependent on foreign borrowers, who gain political power along with their economic holdings. Whether China or any lender would ever use that power is debatable, of course. If Beijing sold selling enough dollars to drive down the price of the greenback, it would devalue the rest of its vast holdings.

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